BI and major accounting firms to audit local banks

BI and major accounting firms to audit local banks

JAKARTA (JP): Bank Indonesia (BI) and six of the world's major
accounting firms will conduct a due diligence audit of
Indonesia's commercial banks to ascertain their financial
condition, a central bank official said yesterday.

BI's deputy director for regulations and banking development,
Djoko Sarwono, said the review of more than 200 commercial banks
-- including scrutiny of asset quality, capital, management, and
networking -- would start this month.

"These important aspects will be compared with international
banking practices," he told reporters yesterday after a banking
seminar.

He explained that the results would be used to formulate
better policies for the banking sector.

The audit will be sponsored by the Asian Development Bank and
executed by international accounting firms including Arthur
Andersen and Price Waterhouse, he said.

"This task will be completed in three months," Djoko, who
oversees banking development and regulations for the central
bank, said.

Banks under the management and supervision of the Indonesian
Bank Restructuring Agency (IBRA) will also be included in the
audit.

Djoko expects the audit will assist the central bank in coming
up with policies to prepare the country's commercial banks for
the era of globalization.

Indonesia's worst-ever monetary crisis has brought the banking
sector to its knees.

A total of 23 banks have been closed down since November last
year. The management of seven other banks is under the control of
IBRA while the agency is supervising a further 32 banks.

Djoko admitted that the monetary crisis had led to a crisis of
confidence in the banking sector, in which not even the
healthiest bank operation could withstand a bank run.

In an agreement with the International Monetary Fund (IMF),
the government agreed to abandon old banking practices, he said.
And the central bank is receiving strict guidance from the IMF,
which is demanding BI implement international banking practices.

"But this cannot be done overnight," Djoko said, pointing to
the large number of commercial banks.

Bank owners must be practical and adjust to the changes, which
require banks to merge if they cannot stand alone, he said.

"Our one-stop service started operating today," Djoko said,
referring to the central bank's special division which provides
technical assistance for bank mergers.

He added that part of the changing environment was a plan to
revamp the country's banking law, including its secrecy codes.

"Under the new codes, the asset side will be disclosed, and
only the liabilities side is kept secret," he said, stressing
that in a special investigation the liabilities could be
disclosed.

Djoko said that creating a healthy and prudent banking
industry had been the central bank's major concern.

BI wants to create a mature banking system with a strong
structure, which is not overcrowded, but instead backed-up by
strong capital and management, and able to compete with overseas
banks, he said. (rei)